What Is a Bond Vigilante?
Bond Vigilantes are fixed income traders, at financial institutions, who express their displeasure with a government or corporate policy by attacking the offending entity.
The attack is carried out by creating a selling frenzy in the bonds of the offending entity. As the selling continues bond values crash resulting in margin calls and other disruptions.
This continues until something eventually breaks ... or the target (offending entity, in this case the UK government) cries uncle and makes a change.
Bond Vigilantes haven't been seen for decades as inflation and interest rates remained low.
With inflation and rising interest rates they're back.
The Vigilantes appearance, in the UK, forced the government to change policy and caused the Chancellor of the Exchequer to resign (equivalent to our Treasury Secretary).
While this is somewhat arcane, the takeaway is that we are seeing another factor adding to the increased uncertainty and volatility of global financial markets.
The UK remains in crisis. There is concern that this crisis may result in global contagion similar to what we saw in 2007-8 during the GFC.
It is another indication of the interconnectedness of the global financial system. ... and the fragility.
Another indication that Chaos Theory is alive and well.
Another reason why I continue to emphasize that increased caution is warranted in this Bear Market.
Having said that, I also continue to emphasize that there is always a Bull Market somewhere.
I am selling some winners and losers; Winners because they're last year's game. Losers because ... well, they're losers and it's time to move on.
I am buying sectors that fit into our macro view.
Active Management is the name of our game as this Bear Market deepens.
The information contained in this Higgins Capital communication is provided for information purposes and is not a solicitation or offer to buy or sell any securities or related financial instruments in any jurisdiction. Past performance does not guarantee future results.
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Ray Higgins
San Diego